Bernard Madoff, or Bernie to his friends, had set up a huge scam which collapsed with the financial crisis, but whose ramifications are still with us today, despite the death in prison of the main protagonist two years ago. To date, Irving Picard, the receiver in charge of overseeing the liquidation of Madoff's company, and his team of lawyers have recovered over $14.6 billion for victims, for a total fraud estimated at $65 billion. Picard estimates that the liabilities of the clients he represents total $17.5 billion.

The case was a boon for his firm, Baker & Hostetler, which has... 1,000 lawyers. Court records show that the firm received more than $1.5 billion in fees over 15 years. These fees, received up to November 2022, represented almost 17% of Baker & Hostetler's sales during this period.

A remarkable result

Picard, now 82, decided early on to bring charges against the "feeder funds" that funneled investors' money to Mr. Madoff, and against the "net winners" of the Madoff scheme. Madoff and against the "net winners", i.e. the investors who withdrew more money from Mr. Madoff's company than they invested.

Almost half of the money recovered came from a 2010 settlement with the estate of Jeremy Picower, a long-time friend of Madoff's, who had $7.2 billion confiscated. In recent years, Picard's focus has been on recovering money transferred abroad.

Marc Litt, who helped convict Madoff as a federal prosecutor in Manhattan and now works at the law firm Wachtel Missry, called Picard's recoveries a "remarkable result". Usually, he says, money from victims of a major fraud is spent beyond recovery.

SIPC pays fees

Picard and Baker & Hostetler's fees are paid by the Securities Investor Protection Corporation (SIPC), a nonprofit organization created by Congress in 1970 to help investors with accounts in failed brokerage firms. These fees come from dues paid by SIPC member brokers, not from money recovered by Picard, said Josephine Wang, president and CEO of SIPC.

It's not uncommon for law firms to collect substantial fees following complex corporate collapses involving fraud. The lawyers who represented Enron Corp investors received some $688 million in fees in 2008 for recovering $7.2 billion from its lenders, auditors and directors over a seven-year period.

Years of litigation

US law firm Sullivan & Cromwell has already been authorized by a judge to collect more than $77 million in fees for the work it has done since last year overseeing the bankruptcy of crypto-currency exchange FTX, according to court documents.

Like the Madoff affair, FTX's bankruptcy will probably extend over several years. Sam Bankman-Fried, its main executive, was convicted last month of stealing $8 billion from FTX customers.

Meanwhile, Mr. Picard's work continues. According to Mr. Wang, the court-appointed administrator is still conducting around 100 recovery actions, compared with around 1,000 at the start of Madoff's liquidation. "Yes, the administrator and SIPC are working hard to bring the liquidation to an end, but that will only happen once clients have recovered as much money as possible," Wang said.

Bernie's Ponzi scheme

Bernard Madoff, was arrested in December 2008 after confessing to his sons, who worked with him, that he had set up a vast Ponzi scheme. Madoff had created a reputation as a skilled and respected investor, attracting thousands of private investors, hedge funds and charitable foundations who entrusted him with their savings. He promised them steady, impressive returns, but in reality, he used the money from new investors to pay off old ones, a classic Ponzi scheme strategy.

The discovery of Madoff's fraud began when the stock market started to decline in 2008. Investors began to withdraw their money, and Madoff struggled to find new investors to maintain his scheme. Finally, he confessed to his sons that he could no longer maintain the illusion. They immediately reported their father to the authorities.

Madoff was arrested on December 11, 2008 and charged with securities fraud. In March 2009, he pleaded guilty to 11 federal charges, including securities fraud, money laundering and perjury. He was sentenced to 150 years in prison, the maximum penalty. Madoff's fraud is considered the largest Ponzi scheme in history, with losses estimated at around $64.8 billion.